With the Financial institution of Japan (BOJ) anticipated to hike charges subsequent week, some observers are fearful that the Japanese yen might surge, triggering an unwinding of “carry trades,” crushing bitcoin.
Their evaluation, nonetheless, overlooks precise positioning within the FX and bond markets, lacking the nuance and way more possible threat that Japanese yields, by anchoring and doubtlessly lifting world bond yields, might finally weigh over threat belongings relatively than the yen itself.
Standard yen carry trades
Earlier than diving deeper, let’s break down the yen carry commerce and its affect on world markets over the previous few a long time.
The yen (JPY) carry commerce includes buyers borrowing yen at low charges in Japan and investing in high-yielding belongings. For many years, Japan stored rates of interest pinned close to zero, prompting merchants to borrow in yen and put money into U.S. tech shares and U.S. Treasury notes.
As Charles Schwab famous, “Going lengthy on tech and quick on the yen had been two very fashionable trades, as a result of for a few years, the yen had been the most affordable main funding foreign money and tech was constantly worthwhile.”
With the BOJ anticipated to boost charges, issues are rising that the yen will lose its cheap-funding standing, making carry trades much less engaging. Increased Japanese rates of interest and JGB yields, together with a strengthening yen, might set off carry commerce unwinds – Japanese capital repatriating from abroad belongings and sparking broad threat aversion, together with in BTC, as witnessed in August 2025.
Debunking the scare
This evaluation, nonetheless, lacks nuance on a number of ranges.
At the start, Japanese charges – even after the anticipated hike – would sit at simply 0.75%, versus 3.75% within the U.S. The yield differential would nonetheless stay large sufficient to favor U.S. belongings and discourage mass unwinding of carry trades. In different phrases, BOJ will stay essentially the most dovish main central financial institution.
Secondly, the approaching BOJ charge hike is hardly sudden and is already priced in, as evidenced by Japanese authorities bond (JGB) yields hovering close to multi-decade highs. The benchmark 10-year JGB yield presently stands at 1.95%, which is greater than 100 foundation factors above the official Japanese benchmark rate of interest of 0.75% projected after the hike.
This disconnect between bond yields and coverage charges suggests market expectations for tighter financial situations are possible already priced in, decreasing the shock worth of the speed adjustment itself.
“Japan’s 1.7% JGB yield isn’t a shock. It has been in ahead markets for greater than a 12 months, and buyers have already repositioned for BOJ normalization since 2023,” InvestingLive’s Chief Asia-Pacific Forex Analyst Eamonn Sheridan mentioned in a latest explainer.
Bullish yen positioning
Lastly, speculators’ web lengthy yen positions go away little room for panic shopping for post-rate hike—and even much less motive for carry commerce unwinds.
Knowledge tracked by Investing.com reveals that speculators’ web positioning has been constantly bullish on the yen since February this 12 months.
This starkly contrasts with mid-2024, when speculators had been bearish on the yen. That possible triggered panic shopping for of the yen when the BOJ raised charges from 0.25% to 0.5% on July 31, 2024, resulting in the unwinding of carry trades and losses in shares and cryptocurrencies.
One other notable distinction again then was that the 10-year yield was on the verge of breaking above 1% for the primary time in a long time, which possible triggered a shock adjustment. That is now not the case, as yields have been above 1% and rising for months, as mentioned earlier.
The yen’s function as a risk-on/risk-off barometer has come beneath query just lately, with the Swiss franc rising as a rival providing comparatively decrease charges and decreased volatility.
To conclude, the anticipated BOJ charge hike might convey volatility, however it’s unlikely to be something like what was seen in August 2025. Traders have already positioned for tightening, as Schwab famous, and changes to BOJ tightening are prone to occur steadily and are already partially underway.
What might go mistaken?
Different issues being equal, the true threat lies in Japanese tightening sustaining elevated U.S. Treasury yields, countering the impression of anticipated Fed charge cuts.
This dynamic might dampen world threat urge for food, as persistently excessive yields increase borrowing prices and weigh on asset valuations, together with these of cryptocurrencies and equities.
Quite than a sudden yen surge unwinding carry trades, watch BOJ’s broader world market impression.
One other macro threat: President Trump’s push for world fiscal enlargement, which might stoke debt fears, carry bond yields, and set off threat aversion.
